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Calculate the present value lease liability amount

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Question - On 1 July 2019, Harry Ltd leased a machinery from Potter Ltd. The finance lease agreement contained the following provisions:

The lease term is for 3 years, starting on 1 July 2019

The lease is non-cancellable

Annual lease payment, payable on 30th June each year 165,000

The estimated useful life of the machinery 5 years

Estimated residual value of the machinery at end of useful life $30,000

Interest rate implicit in the lease 6%

There is a bargain purchase option that Harry Ltd will be able to exercise at the end of the lease term for $60,000. The annual lease payment includes $15,000 representing payment to the lessor for insurance and maintenance of the machinery.

Required -

a) Calculate the present value lease liability amount as at 1 July 2019.

b) Prepare the journal entries in relation to the lease for the year ending 30 Jun 2020.

 

Reference no: EM132547609

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